Gooch & Housego PLC (LON:GHH) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Gooch & Housego's shares before the 22nd of June to receive the dividend, which will be paid on the 28th of July.

The company's next dividend payment will be UK£0.048 per share, and in the last 12 months, the company paid a total of UK£0.13 per share. Based on the last year's worth of payments, Gooch & Housego stock has a trailing yield of around 2.0% on the current share price of £6.34. If you buy this business for its dividend, you should have an idea of whether Gooch & Housego's dividend is reliable and sustainable. As a result, readers should always check whether Gooch & Housego has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Gooch & Housego

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Gooch & Housego's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Gooch & Housego didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Gooch & Housego paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends. historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Gooch & Housego was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Gooch & Housego has increased its dividend at approximately 9.3% a year on average.

Get our latest analysis on Gooch & Housego's balance sheet health here.

To Sum It Up

Has Gooch & Housego got what it takes to maintain its dividend payments? It's hard to get used to Gooch & Housego paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Gooch & Housego.

Curious what other investors think of Gooch & Housego? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here